Spelling out capacity for loss in pounds and pence helps clients visualise their finances and ensures a firm’s back is covered in a crisis.

Capacity for loss is something many advisers still struggle with, particularly when it comes to ensuring clients fully understand what their capacity for loss actually is.

All too often we see firms telling clients they have a low, medium or high capacity for loss. The extent to which clients understand what that means and how it relates to their financial goals is unknown.

Labelling capacity for loss in this way is probably meaningless to the client. It also risks subjectivity: one client’s understanding of low capacity for loss could be completely different to another’s.

Read more in our NMA article here.